February 27, 2007

Legal Tender: A Better Retirement

It looks like today may turn out to be an ugly one in the stock markets. But to avoid panic, it helps to keep some perspective about your long-term investing goals.

By chance, The Legal Intelligencer, an ALM publication in Pennsylvania, published a useful article today on ways investors can improve their savings for retirement. The author, William Suplee IV of Structured Asset Management, summarized findings from Dalbar, a Boston-based research firm that did a quantitative analysis of investor behavior.

Among the reported findings:

Because of timing and trading errors, the average investor over the study's time period trailed the returns of the S&P 500 index by 8 percent.

Buying and holding an S&P 500 index fund would have provided returns better than those of the vast majority of investors.

Over a simulated 20 year-period, an investor who used dollar-cost averaging (that is, investing a predetermined amount of money at regular intervals) would have ending balances 50 percent higher than someone with the behavior of the average investor.